Inflation? Unemployment claims will be the beacon for investors
The comment of Adrian Owens, Investment Director Global Macro and Currency Fixed Income of GAM Investments
Undoubtedly, the main theme today is inflation. Historically, during times when inflation has been very high, public debt has generally been high.
This is also the case today and it is important to remember that it is in this scenario that central banks are trying, with delay, to bring down inflation. For years, major central banks have been injecting liquidity into the system. In our opinion, they have rested on their laurels because inflation has been low for a very long time. They have practically forgotten that it takes time for monetary policy to work, and the effects are variable. They fueled the fire of inflation. The pandemic was the trigger. However, the situation has now worsened and spread widely.
Unfortunately, we are in a situation where short-term excess liquidity and other more medium-term factors are all heading in the same direction, making it increasingly difficult to slow down inflation than in the past. The demographic dynamics do not help. In 2000, China placed about 15 million workers on the labor market per year. Today it loses between 1 and 2 million. In other advanced economies, participation in work has also declined. Climate change, ESG factors, are all elements that make us think that inflation will be higher than it would otherwise be. And of course the situation in Russia and Ukraine also doesn't help. What does it mean? In our opinion, it means that core inflation is persistent and falling much slower than the market generally expects. Of course, this affects the market, in the sense that today the market expects interest rates to rise for a while longer, then central banks will begin to reverse the trend.
One area we will focus on to monitor the situation is the labor market and, in particular, the labor market in the United States. Because it is a key market. But if we had to pick a single datum, we would probably look at the unemployment claims. They are one of the most accurate indicators we can examine.
A substantial increase in requests would be an encouraging sign, because at least we would begin to notice a certain weakness in the labor market which would ease the pressure on the inflation front a little.
This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/economia/inflazione-le-richieste-di-disoccupazione-saranno-il-faro-per-gli-investitori/ on Sat, 20 Aug 2022 05:15:24 +0000.